Is Relief in Sight?

Three-fourths of the $600 billion of subprime mortgages in 2006 were sold by lenders and repackaged into bonds, says USA Today.

Federal Deposit Insurance Corp. (FDIC) Chair Sheila Bair is, to use her own words, "hold[ing] the [loan] servicers' and investors' feet to the fire," since it should have been clear that the loans were high-risk. The FDIC, Federal Reserve and other regulators asked lenders to work with homeowners, promising they will not face regulatory penalties for reasonable workouts. It urged them to work with consumer groups and to help borrowers avoid predatory restructuring scams.

But to do this requires working through complex tax and accounting rules that limit what servicers can do. For example, some bonds have a 5% cap on loan restructuring or are crafted in a way that some investors win and others lose if loans are changed.

Fannie Mae said yesterday that it will help borrowers refinance out of adjustable-rate mortgage (ARM) products or other loans. Consumers could move into loans that meet Fannie's standards without first having to clear unpaid bills on credit reports. Also, the maximum loan term could be stretched to 40 years from 30. (The firm estimates that as many as 1.5 million borrowers could be eligible for its loan options.)

Source: USA Today